Asia warms to managing money in the family way

Well-established family offices have been around for several decades in Asia.  UBS estimates around 150 are operating today. But in general, this sector is still underdeveloped and the region lags behind Europe and the US in terms of presence and services. 

This is beginning to change. Increasing mobility of Asian wealthy families, with younger generations exposed to best practices in other continents, is driving the new US and UK-educated cohorts to set up private offices which manage family assets. 

These younger generations no longer accept the informal way of managing wealth adopted by their parents. The business founders and family patriarchs typically relied on trusted advisers, who had been within the family circle for many years. 

The new way of working involves establishment of proper governance and infrastructure. A specially structured private investment fund for the family can then build a track record, before opening the business up to other wealthy families. This transforms the operation into a de facto multi-family office (MFO), says Eric Landolt, head of Family Advisory for Wealth Management Apac at UBS. 

Hiring external investment experts, with a solid background, who can interact with banks and third-party service providers, is the next step of this professionalisation process, he says. “There is a trend to the general professionalisation or formalisation of family offices, where assets are clearly divided, with the family office assets separated from the proprietary fund of the business, in a different portfolio.” 

Rebranding by traditional financial intermediaries has also fuelled the rise of Asian MFOs. “This is such a buzzword, and MFO sounds much better than asset manager or financial intermediary,” says Mr Landolt. “But families have to be careful about who they are dealing with.”

While some offices are professional and have good track records, others may not be able to meet regulatory requirements, he warns. Currently Hong Kong and Singapore do not regulate their MFOs, even though the expected trend will be towards more forensic oversight of these intermediaries, says Mr Landolt. “Increasingly stringent regulation is definitely a challenge going forward for the very small boutiques.”

Other banks also point to a fast expansion of the MFO sphere. “The multi-office space has been growing, but we haven’t seen any friction,” declares Bernard Fung, head of Family Office Services and Philanthropy Advisory at Credit Suisse. “The market is large enough and growing, and also multi-family offices still need to work with banks, as they cannot afford to construct the platform themselves.”

If even 10 per cent of Asia’s 3m high net worth individuals are ready to start a family office, that would result in 300,000 new family offices. 

This competition may appear healthy, but MFOs offer much more flexibility to bankers and could potentially pose a huge threat to private banks, warns Simeon Fowler, CEO of Asian headhunters Fowler Fox.

Due to recent regulatory constraints, more and more private bankers are looking to set up their own firms, or join independent asset managers and family offices, he says, with senior staff leaving Citi, EFG, BSI and UBS, both in Hong Kong and Singapore.

This latest trend exacerbates the historical struggle of Asian private banks to grab the best-qualified private bankers. Between Singapore and Hong Kong there are just slightly more than 80 high-quality private bankers, estimates Mr Fowler.

And this is an old talent pool, with most of them “pushing their 60s”.

These are the private bankers “everybody is fighting for”, who have a demonstrable track record of hiring, nurturing talent in their own image and bringing assets on board.

Good private bankers need to speak Mandarin or Cantonese, and command one of the other Asian languages. They must have a solid understanding of the local culture and an international flavour to their career.

Far fewer Europeans are working in Asian private banks due to the expense of importing talent from London or Switzerland, adds Mr Fowler. “Those days of the expats here in banks are long gone.”

A huge training and skills gap shows little sign of narrowing, with potential senior recruits to the largest banks put off by “that solid, very insular top level of management, which is very difficult to become close to”.

Moreover, the role of private banker has lost much of its lustre. “While 20-30 years ago there was a prestige about being a banker, today there is a stigma attached,” states Mr Fowler, with younger generations attracted to the glamour of joining a start-up or designing apps for a fintech business. With all these competing pressures, Asian private banks’ ongoing fight for talent is set to continue.